Growth Data Suggests Interest Rate Cut

The shekel continues to give the dollar a hammering in the exchange rate, but the Bank of Israel will likely cut interest rates in the near term, a move that should help rein in the shekel, Globes reported on Monday.

FXCM cited the latest data on economic growth as the basis for this view: “The Central Bureau of Statistics released Israel’s second quarter growth figures showing a fall in the annual rate of growth in the Israeli economy from 2.9% to 2.1%. These figures tend to strengthen the view that the Bank of Israel will make a further interest rate cut, creating negative pressure on the shekel in the next few days.”

Hegding its bets, though, FXCM went on to say that “local macro data sometimes have little effect on the shekel-dollar exchange rate, and the trend is mainly dictated by the trend in the dollar on world markets and the balance of forces between speculators in the local arena.”

“On the global scene, the fall in U.S. T-bond yields continues to weigh on the dollar.”

But it could go either way, says FXCM. “The shekel-dollar pair is at a crossroads. At present, it is not managing to generate positive momentum that will open the way to a substantial correction. A rise above NIS 3.47/$ could spur the market to push it upwards towards NIS 3.50/$. On the other hand, a fall below the NIS 3.45/$ threshold could be the signal for a wave of declines.”

This article appeared in print on page 7 of the May 20th, 2014 edition of Hamodia.